Financing your Home Improvements

Looking to finance the improvements on your home? Here are some tips to consider.

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Potential Prepayment Penalties

When deciding among various loan sources, you should consider prepayment penalties. If you decide to sell your home while you have a home-improvement loan, you could be required to pay the loan in full, including the prepayment penalty.

Option of Escrow Accounts

Even if your lender doesn't require an escrow account for home improvement loans, you may want to consider using a joint control company to disburse contract payments. A joint control company is a licensed escrow company that specializes in handling funds for construction jobs. However using an escrow account is not substitute for a payment bond. Escrow companies are not required by law to inspect your job. They usually provide vouchers for the borrower to complete and present to the escrow company. A good practice would be to ensure not to authorize payment to the contractor in advance of any work.

For additional protection, escrow companies use an Addendum to Control Agreement Escrow Instructions . The addendum should state in writing that the escrow company agrees to a method of making payments best deigned to protect your money and property. This is signed by the escrow company, you and the contractor. Ask your lending agency and contractor for recommendations on escrow companies. If you are considering an escrow account, it is best to have this stated in writing on the contract.

Completion Bonds

If you want a completion bond, this should be stated on the contract. For further information on completion bonds, contact your attorney.

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